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Common start-up business problems and how to overcome them
by Startacus Admin
Common start-up business problems and how to overcome them
Below, we will explore some of the common pitfalls faced by small businesses: from handling their finances and managing clients, to hiring their staff. If these new business issues are approached and handled correctly, there’s more of a chance you’ll not only survive the predicted initial lean years, but both prosper and grow.
Forgetting to do your market research
What products or services will you offer and why? Why is the probably the most important question to ask yourself because you need there to be sufficient demand. You need to know who are you going to market your business to and, of that target audience, how many are realistically going to be customers?
For example, if you’re selling customized golf caddies, you need to know the amount of golf courses and golf club members that are in your area. Even if you believe what you offer is the best around, you need to have a viable market to sell to. Is there a demand for customized golf caddies? It’s not hard to get tunnel vision and set up a new business without testing how viable it is.
Not sharing your business vision
Going it alone and setting up your own business doesn’t necessarily mean doing everything yourself; outside input can be constructive. Not sharing your thoughts on how the business should develop with a partner, financial advisor or those who you trust, means that you’ll lose the opportunity to receive objective and constructive feedback that you can act on.
Speak with current customers or your target audience and get their opinion on what you’re doing. You may think that you’re offering a service that doesn’t currently exist, but they may see it as one that doesn’t need to exist. Again, you need to be sure there is a demand. Negative feedback will be useful in alerting you to the potential dangers of a certain business plan.
Networking with people in your target industry can be valuable too. If you’re worried about confidentiality, a non-disclosure agreement could be written up. This can help when researching customer profiles and their buying trends or networking with professionals in the same sector.
Overlooking financial planning and sourcing capital
Getting enough money to start your new venture can be difficult. Be this in the form of savings, a loan, grant or investment, managing and planning your finances is required to keep yourself in the black, on paper at least.
Business banking is the tried and tested method of funding business, for both starting up and expanding, so you will need a viable business plan to present to your bank. Luckily, there are plenty of templates and guides online to help you outline your objectives, income projections and future plans.
When choosing a loan to finance start-up, you may be better looking only at start-up specific loans and business current accounts. One thing to mention is that business bank accounts are required by law if you’re operating as a Limited Company or Partnership. The only exception is if you’re a Sole Trader, however, separating your personal and business finances is a good enough reason.
Start-up business accounts usually offer an attractive interest free period, reduced or free balance transfers and access to professional business advisors. Have a look at what your local bank offers in addition to the overdraft facilities as these added features can really come in handy with a fledgling business.
Not seeking professional help
Again, with the access to an advisor with your bank account, two birds can be taken with one stone. You may wish to seek the advice of independent accounting or financial professionals who can give you independent qualified guidance on your projects.
Being overly optimistic
Making sensible, realistic predictions about your business will keep you on the right track. This is vital when speaking with financial advisors and investors. If you’re promising over optimistic sales figures without a firm basis, you’ll jeopardize your whole business if investment or stock purchasing doesn’t tally. The main point, touched upon above, is overestimating your market size. Be cautious and realistic in your estimates. With the golf buggy examples; not everyone who is a golf club member will want one, and of those who do buy, it’s unlikely they will be buying one every month, so don’t make any assumptions.
Not focusing your attention
Spreading your time and diversifying before getting a solid foothold in one area can cost a new business dearly. Don’t increase your risks to capital and market control by changing your focus from your original idea, unless of course there was significant negative feedback and adaptation was necessary. It will be better to be in control of the only aspect of your business than unsure with many. Remember your brand identity and keep on track with what you want to be known for.
Ignoring the competition
Focusing solely on what your business is doing can be detrimental too. Keep an eye on your competitors. What are they doing? How are they adapting and interacting with the current market? Is there anything they are doing which you aren’t?
Do some basic level sleuthing to size up your rivals and perform a competitor analysis. There’s a wealth of information you can draw upon such as:
Their advertising – where, when, how, why?
Where they are – are they doing conventions, charity events, exhibitions?
Their products and services – which are doing the same as you, how can you improve or expand upon them?
Their customers – who are they, why do they use your competitor over others?
Expansion plans – keep an eye out for any development opportunities
Reacting to the information gained is important. Allocate resources, adapt your marketing plan based upon your research and react accordingly.
Not managing suppliers and customers correctly
Credit arrangements are common with businesses; often you’ll only be paid 30, 60, or 90 days after the product or service has been provided. Managing your finances in the lag time correctly should be a high priority and the ability to get a good deal on payment terms and possible discounts if you’re looking at establishing a long-term relationship can help or hinder your profitability.
Identify several suppliers, get quotes and offer them the chance to match their competition. Once you’re satisfied with your choice get down to drawing up terms, conditions and finalizing a formal contract.
Not arranging credit agreements that favour your business
As mentioned, you’ll often buy and sell goods on credit. It is imperative that you perform credit checks as you may leave your business in the lurch if there is a late or non-payment. Overdraft facilities can help in this area but shouldn’t be relied upon so make sure they will be able to pay to avoid putting your business at risk. Things to check:
Financial credit checks on new and existing customers. Don’t assume they can pay.
Check references, online credit ratings, trade references and their customers - what do people say? Are they regularly late with payments or always on time?
Make sure that the credit terms agreed are clearly understood and adhered to. You could add that financial penalties could be incurred for late payments to cover your additional costs.
Discounts for paying invoices early could be offered too, both the carrot and the stick method are viable.
Some options to cover these are available though, such as:
Commercial current accounts often come hand-in-hand with overdraft facilities. These can be interest free on start-up specific packages.
Invoice financing and factoring. These can be drawn upon to release up to 90% of the equity of the invoice, immediately. The rest will be paid once the supplier completes their invoice payment, minus some fees. Ideal when you need to release cash and can’t wait for the invoice to come in, or if there is a late payment that is putting you in jeopardy.
Not managing your assets economically by renting, leasing or buying
Keeping an up to date inventory of your business is important. Depreciation and waste can eat into your finances, so knowing what you have and how long it’s going to be valuable is essential so don’t keep excess capital tied-up unnecessarily.
Asset management also applies to your premises. The first question to ask would be “Do I need premises?”, as many businesses can be run from home. If you are in need of business premises, be that a warehouse, office or a van, you should see which is the most financially efficient model to follow.
Leasing assets can spread your payments over a long period, so you’ll always have capital free for unexpected costs. Look at leasing office furniture, vehicles or equipment rather than buying outright. Hire purchase is a common way to own assets without paying in full.
Not hiring the right people
The quality of your staff reflects in your product or service. People are an investment and you want this to pay off exponentially. A mix of permanent and temporary staff, including freelancers, contractors and consultants can be the way to go rather than hiring everyone on a full-time basis.
Project–by-project management is essential; will you really need a member of staff year round, or just for a particular phase of your business’s development? Think hard and you’ll be able to reduce costs whilst keeping production and motivation high.
Not delegating the workload correctly
As mentioned before, sharing your business ideas with others is important, you won’t be able to do everything yourself. This goes for management too. Sharing out the workload to those who are most capable will increase efficiency and allow you more time to focus on what you’re best at.
Keeping on top of these areas with your new business will help you keep your head above water. Many points may seem obvious, but many entrepreneurs fall into bad practices and don’t focus their energy in the right areas. Stick to tackling these issues and you’ll be on track to be a successful start-up.